British Prime Minister Theresa May’s claims that no deal would be better than a bad deal are wrong and will not help strengthen the U.K.’s hand in Brexit talks, new analysis from the Official Monetary and Financial Institutions Forum (OMFIF) has said.
In the final day of campaigning before Britons take to the polls, the independent think tank has criticised May’s position and said that the cost of walking away from the negotiating table without a deal would far outweigh the cost of accepting a poor deal with the EU.
“EU negotiators are dismissive of British threats to walk away with no deal,” OMFIF wrote in a report released Wednesday, arguing that the EU is acutely aware of the losses the U.K. would suffer outside of the union.
Without a deal, EU exports of goods and services are expected to shrink sharply as businesses face new tariffs of 10 percent (for car exporters) to 14 percent (for food exporters). This would provoke a fall in the price of sterling, a rise in inflation, and, ultimately, a “deep recession”, which would lower tax revenues and the scope for fiscal stimulus, the report claims.
The Bank of England would then face the dilemma of choosing to raise interest rates to stabilise sterling or keeping them low to stimulate the economy, it added.
“The costs to the UK economy of failing to strike a deal would dwarf those of signing up to a bad deal,” authors John Springford, OMFIF director of research, and Simon Tilford, OMFIF deputy director of the centre for European reform, suggested.
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